Ehrlich says Maryland has surplus of $1 billion

Governor credits `real talent' on part of officials, efforts toward job creation

critics say the economy is responsible

`Structural deficit' still looms in coming years

July 20, 2005|By Andrew A. Green | Andrew A. Green,SUN STAFF

Gov. Robert L. Ehrlich Jr. said yesterday that his administration's fiscal prudence has created a surplus of more than $1 billion for the fiscal year that ended last month, but Democratic and independent budget-watchers said the figure is less impressive than it seems and questioned how much the governor had to do with it.

In a radio interview yesterday, Ehrlich acknowledged that the national economic recovery has helped the state's budget picture. He asserted that his administration inherited $4 billion in projected deficits from Democratic predecessors and, through fiscal prudence and policies designed to help the economy grow, achieved a $1 billion surplus.

"That record is reflective of some talent, some real talent running state government, running our agencies, working with the private sector in creating jobs," Ehrlich said on WBAL-AM. "When you create jobs, when you empower people, you end up with a surplus."

Critics said the driving factor in the state's good financial news is a rapid but largely unexplained increase in income tax collections.

In light of improving finances, the governor said he would work with the General Assembly to reduce taxes for state residents. The governor did not say how much of a tax cut he would propose, or in what form. Most of the surplus had been expected and had been dedicated to spending on programs or to a rainy-day reserve fund, officials said.

"The legislature sometimes disagrees with me," Ehrlich said. "But hopefully, this time the legislature will go along with the way we want to cut taxes."

Democrats and the chief fiscal analyst in the nonpartisan Department of Legislative Services said the state's situation was never as dire as the governor suggested, nor is the surplus as meaningful or the administration's role in changing the state finances as great.

"It's nothing anyone in state government had anything to do with," said Warren G. Deschenaux, the Assembly's chief fiscal analyst.

Sen. Ulysses Currie, a Prince George's County Democrat and chairman of the Senate Budget and Taxation Committee, said his guess is that the hot real estate market caused the turnaround.

Low mortgage rates have contributed to a spike in home sales prices and, in turn, higher capital gains taxes for the state, much in the same way the runaway stock market made the state budget flush in the late 1990s, Currie said.

"It's the interest rates, not the governor," he said.

Del. Norman H. Conway, chairman of the House Appropriations Committee and an Eastern Shore Democrat, said the governor glossed over the role of the legislature in trimming his spending proposals.

This year, Ehrlich's budget was $165 million more than the maximum recommended by the state's Spending Affordability Committee, meaning state spending would grow faster than Marylanders' incomes. The legislature trimmed about $160 million of that, Conway said.

"I guess I'm one of the few, but I kind of think it's something we do together, the executive and the legislature ... to maintain fiscal prudence," Conway said.

The surplus noted yesterday does not mean the state collected $1 billion more in taxes in fiscal 2005 than it spent, officials said.

Acting Budget Secretary Cecilia Januszkiewicz said the administration arrived at the figure by counting $452 million in unexpected receipts that went unspent in the budget year that ended June 30, 2004, as well as transfers from other state funds; subtracting spending; and adding more unexpected revenue collected in fiscal 2005.

About $400 million of the projected surplus comes from increased tax collections that Comptroller William Donald Schaefer announced last week.

Januszkiewicz acknowledged that the new estimates don't mean that the state's long-term fiscal problems have been solved. Education spending increases required by a multiyear education funding reform program and projected increases for Medicaid mean expenditures over the next several years still outpace expected revenue. The condition is known as a "structural deficit."

But, she said, the surplus the governor announced yesterday represents an important milestone in the state's fiscal turnaround. "Having $1 billion, and that's certainly $391 million more than we expected two months ago, is a positive development and helps address part of the structural deficit," she said.

Within hours of Ehrlich's appearance on the radio, the Democratic Party circulated an e-mail accusing the governor of making a series of "outrageous and bogus claims" about his administration's fiscal management.

Democrats took issue with Ehrlich's claims that "general tax increases have been beaten down every time in this administration," that he has cut the size of Maryland government by 7 percent and that he never linked his proposals for legalizing slot machines to the state's fiscal problems.

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